ECB QE and growth may obscure Polish political risk
Significance Having fallen against the resurgent dollar this year, the zloty has lately been strengthening, since the US Federal Reserve surprised financial markets by striking a more dovish stance than expected on both the timing and pace of the anticipated tightening in monetary policy. While the zloty and Polish stocks had suffered because of fears of a rise in US interest rates, local bonds have been underpinned by the ECB's quantitative easing (QE) programme. The effects of QE and a brisker economic recovery may temporarily offset the risk of an inconclusive result in the parliamentary election in October. Impacts Investors have yet to price in the risk of a hung parliament in Poland following October's election. The vote could lead to the formation of a weak and unstable coalition government. The risk of an unstable coalition is particularly high, given the strong likelihood that PO's share of the vote will decline sharply.